Purchase activity reaches the highest level in over 11 years, homebuilder sentiment posts biggest monthly surge EVER, and gain for single family permits points to building growth. All data indicates a surge in market activity This Week in Real Estate. Click here to read more.
We’re getting a better idea of how the worldwide coronavirus pandemic is impacting home sales as ATTOM Data Solutions releases its First Quarter Home Sales Report. Plus, a growing number of states are relaxing their social distancing protocols, but is it enough to cause the real estate market to thaw? And, homeownership rates are up despite the COVID-19 pandemic. We take a closer look This Week in Real Estate.
* U.S. Home Sellers Realized Average Price Gain of $67,100 in First Quarter of 2020. ATTOM Data Solutions released its First Quarter 2020 U.S. Home Sales Report Thursday, which shows that home sellers nationwide realized a home price gain of $67,100 on the typical sale, up from $66,264 in the fourth quarter of 2019 and up from $59,000 in the first quarter of last year. That $67,100 typical home-seller profit represented a 33.7 percent return on investment compared to the original purchase price, down from the post-recession high of 34.4 percent in the fourth quarter of 2019 but up from 32.8 percent a year ago. “The national housing market continued at full throttle in the first quarter of 2020, setting new price and profit records as it entered its ninth straight year of gains. After it looked like things were settling down last year, the market has again roared ahead, with significant increases,” said Todd Teta, chief product officer at ATTOM Data Solutions. “It is extremely important to note that the latest momentum is likely to hit a wall and reverse because of the drastic economic slowdown caused by the Coronavirus pandemic. Millions of Americans are newly unemployed, and most people are practicing social distancing, which could bring things to a halt just as the Spring buying season begins. Despite that cloud, the numbers for Q1 still do remain upbeat.”
* Home Purchase Applications Rise as Coronavirus Slowdown Begins to Thaw. With a growing number of states indicating over the last week that they are moving toward relaxing the social distancing protocols put in place to prevent the further spread of COVID-19, it appears that the real estate market may be beginning to thaw. In recent weeks, home purchase applications have declined sharply as people simply weren’t applying for mortgages. But that trend may be reversing, as new data from the Mortgage Bankers Association shows that home purchase mortgage applications recently rose to the highest level in nearly a month. “The news in this week’s release is that purchase applications, still recovering from a five-year low, increased 12% last week to the strongest level in almost a month,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
* Homeownership Rate Up in the First Quarter 2020. According to the Census Bureau’s Housing Vacancy Survey (HVS), the U.S. homeownership rate reaches 65.3% in the first quarter 2020. This is 1.1 percentage points higher than the rate of 64.2% in the first quarter of 2019, but not statistically different from the previous quarter reading of 65.1%. Strong owner household formation with around 2.7 million homeowners added in the first quarter has driven up the homeownership rate, especially under the decreasing mortgage interest rates and strong new home sales and existing home sales in the first two months before the COVID-19 pandemic hit the economy. The HVS provides a timely measure of household formations – the key driver of housing demand. The housing stock-based HVS revealed that the number of households increased to 124.4 million in the first quarter of 2020, 2.0 million higher than a year ago.
As a marketing agent, I want to sell homes for more, not merely sell more homes. That’s why I focus on strategic pricing, negotiating, marketing and networking. My last listing went pending in less than a week, during the COVID-19 pandemic. If you’re interested in selling, let’s talk!
We’re learning more about the potential economic impacts of the coronavirus as described by leading financial institutions. Past pandemics resulted in a V-shaped recovery, which is a sharp decline followed by a steep rebound, with minimal impact on housing prices. Despite global uncertainty what we do know is mortgage rates the past two weeks experienced the largest two-week decline since December 2008, people are still buying and selling real estate, the government has passed the largest financial stimulus package ever, and jobless claims have hit record highs. Let’s take a look at a few newsworthy events influencing This Week in Real Estate.
* Looking To The Future: What The Experts Are Saying. As our lives, our businesses, and the world we live in change day-by-day, we’re all left wondering how long this will last. How long will we feel the effects of the coronavirus? How deep will the impact go? The human toll may forever change families, but the economic impact will rebound with a cycle of downturn followed by economic expansion like we’ve seen play out in the U.S. economy many times over. When looking at GDP (the measure of our country’s economic health), a survey of three leading financial institutions shows a projected sharp decline followed by a steep reboundin the second half of this year. A recent study from John Burns Consulting also notes that past pandemics have also created V-Shaped Economic Recoveries like the ones noted above, and they had minimal impact on housing prices. This certainly gives hope and optimism for what is to come as the crisis passes. From expert financial institutions to business leaders across the country, we can clearly see that the anticipation of a quick return to normal once the current crisis subsides is not too far away. In essence, this won’t last forever, and we will get back to growth-mode.
* Residential Construction is Bright Spot in Jobs Report, but More Workers Start to Stay Home. While overall construction employment fell in March, according to the Bureau of Labor Statistics, residential construction added 2,000 jobs. It remains to be seen how long that will last. In its second weekly survey of residential homebuilders, conducted from March 24 to March 31, the National Association of Home Builders found 64% of respondents cited problems with the willingness of workers and subs to report to a construction site up from 42% a week earlier. “Keeping construction going is essential to our economy in so many ways. Shelter is as critical as food and water. So we need to continue building so that there’s not a shortage of housing downstream, particularly affordable housing,” said Toby Bozzuto, CEO of Bozzuto Group.
* Mortgage Rates Drop on Fed Intervention. The average U.S. rate for a 30-year fixed mortgage fell to 3.33% this week, according to Freddie Mac, as the Federal Reserve’s bond-buying program created demand for securities backed by home loans. Together with the prior week’s drop, it was the largest two-week decline since December 2008. The Fed revived its bond-buying program on March 15 in an attempt to grease the wheels of the lending markets and prevent the type of credit crunch that devastated the mortgage industry more than a decade ago. This week’s 17 basis point drop in the average 30-year fixed rate indicates it’s working. “That drop reflects improvements in market liquidity and sentiment,” said Sam Khater, Freddie Mac’s chief economist. “Homebuyer demand has declined in response to current economic conditions,” Khater said. “The good news is that the pending economic stimulus is on the way and will provide support for both consumers and businesses.”
The Federal Housing Finance Agency (FHFA) is suspending foreclosures and evictions for homeowners with a Fannie Mae or Freddie Mac-backed single family mortgage for at least 60 days due to the COVID-19 national emergency.
Fannie Mae, Freddie Mac (the Enterprises) and the Federal Home Loan Banks are taking steps to help people who have been impacted by the coronavirus. Fannie and Freddie are providing payment forbearance for borrowers impacted by the crisis, which will allow a mortgage payment to be suspended for up to 12 months by qualified borrowers.
If your ability to pay your mortgage is impacted, and your loan is owned by Fannie Mae or Freddie Mac, you may be eligible to delay making your monthly mortgage payments for a temporary period, during which:
You won’t incur late fees.
You won’t have delinquencies reported to the credit bureaus.
Foreclosure and other legal proceedings will be suspended
This decision follows the U.S. Housing and Urban Development’s announcement earlier this month to halt foreclosures and evictions for FHA loans on single-family homes for 60 days due to COVID-19.
If you have any concerns about your mortgage contact your mortgage servicer (where you send your monthly mortgage payments).
You can visit the HUD and FHFA websites for more information.
Economists are all over the board when it comes to predicting what’s next for our economy or how large of an impact the coronavirus will have on the housing market; however, new data on the condition of the market prior to the pandemic is giving us hope the market will bounce back when the pandemic passes. As we continue to navigate these uncertain times, here is what we do know… U.S. existing home sales climbed to a 13-year high in February, mortgage application volume remains high despite the rate of volatility, and residential construction remains strong as it awaits the coronavirus impact. Below are a few highlights from the third week of March impacting This Week in Real Estate.
“While the impacts of the coronavirus that causes COVID-19 continues to impact the housing market, once the effects of the pandemic pass, more homebuyers are likely to return to the market,” says Lawrence Yun, Chief Economist at the National Association of Realtors.
* U.S. Existing-Home Sales Climbed to 13-Year High in February.
U.S. existing-home sales rose 6.5% in February, increasing to a 13-year high, according to the National Association of Realtors. Total existing-home sales completed transactions that include single-family homes, townhomes, condominiums, and co-ops – rose to a seasonally adjusted annualized rate of 5.77 million. This means sales were 7.2% above February 2019’s rate.
According to Lawrence Yun, NAR’s chief economist, February’s sales of over 5 million homes was the strongest increase since February 2007.
“For the past couple of months, we have seen the number of buyers grow as more people enter the market,” Yun said. “Once the social-distancing and quarantine measures are relaxed, we should see this temporary pause evaporate, and will have potential buyers return with the same enthusiasm.” That being said, Yun noted that February’s home sales were encouraging but not reflective of the current turmoil in the stock market or the significant hit the economy is expected to take because of the coronavirus.
“These figures show that housing was on a positive trajectory, but the coronavirus has undoubtedly slowed buyer traffic and it is difficult to predict what short-term effects the pandemic will have on future sales,” Yun said.
Despite the market’s instability, of the four major regions, only the Northeast reported a decline in existing-home sales in February, while the remaining regions saw increases, including sizable sales gains in the West, according to NAR. Existing-home sales in the West jumped by 18.9% to an annual rate of 1.26 million in February, which is an 11.5% rise from 2019’s rate. The median price in the West was $410,100, increasing 8.1% from this time in 2019.
* Mortgage Application Volume Remains High Despite Rate Volatility.
After last week’s report on a record-busting week for mortgage applications what probably is surprising, as the country goes into virtual lock down over the coronavirus outbreak, is how strong activity remained.
“The ongoing situation around the coronavirus led to further stress in the financial markets late last week, with unprecedented volatility and widening spreads. This drove mortgage rates back up to their highest levels since mid-February and led to a 10 percent decrease in refinance applications. However, refinance activity remains very high,” says Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
The Federal Reserve’s rate cut and other monetary policy measures to help the economy should help to bring down mortgage rates in the coming weeks, spurring more refinancing. Amidst these challenging times, the savings that households can gain from refinancing will help bolster their own financial circumstances and support the broader economy. The purchase market was on firm footing to start the year and has so far held steady through the current uncertainty. Looking ahead, a gloomier outlook may cause some prospective homebuyers to delay their home search, even with these lower mortgage rates,” says Kan.
* Residential Construction Remains Strong as it Awaits Coronavirus Impact.
As anticipated, the two major data sets in February’s residential construction report declined from their January level but both construction permitting and housing starts maintained a significant edge over their performance in February 2019. February permits for residential construction were up 13.8 percent compared to a year earlier. Single-family permits were up 23.3 percent from a year earlier. Housing starts grew by 39.2 percent year-over-year. Single-family starts grew by 35.4 percent from a year earlier.
“Due to the slowdown in economic growth and the volatility in markets from the coronavirus, mortgage rates will remain lower for longer, which will help homebuyers in the longer run,” Kan continued, “However, we may start to see these homebuilding trends take a turn for the worse, depending on the industry’s ability to continue day-to-day operations during these difficult times.”
As fears surrounding the spread of the Coronavirus (COVID-19) impacts economies and industries worldwide, a recent survey by the National Association of Realtors (NAR) details how the Coronavirus (COVID-19), changes in mortgage rates and huge swings in the stock market are impacting the behavior of home buyers and sellers on the West Coast and nationwide.
Mortgage Rate Change
The vast majority of sellers in California and Washington have decided not to make changes to their home listing despite concerns regarding the spread of the Coronavirus (COVID-19). California is actually reporting a surge in sellers entering the market to take advantage of the historically low interest rates. Just 4% of sellers both in California and nationwide have decided to remove their home from the market and refinance. That number is slightly higher in Washington at 6%. (see graph below)
Big fluctuations in the stock market over Cornonavirus (COVID-19) concerns doesn’t appear to be having a major impact on buyers’ behavior. According to the NAR Flash Survey, realtors reported their buyers are more excited by the lower mortgage rates than they are nervous about the stock market fluctuations. (see graph below)
The majority of members reported there has been no change in buyer interest due to the coronavirus (COVID-19). However, 16 percent of members cited interest has decreased nationwide. In California, 21 percent of members cited a decrease in interest. In Washington, 19 percent of members cited a decrease in interest.
Despite coronavirus (COVID-19) concerns and big fluctuations in the stock market, the majority of sellers are still choosing to list their homes. Nationwide, only 10% of realtors cited a decrease in interest. On the West Coast, California realtors are reporting a 14% decrease while Washington realtors are reporting a 15% decrease in interest. (see graph below)
Even fewer sellers are removing their home from the market due to coronavirus (COVID-19) concerns. Most markets reported no change; however, in Washington 5% of realtors reported homes removed from the market, California reported 4%.
Sellers are, however, changing some of their requirements when it comes to how their home is viewed. About one quarter of home sellers nationwide are making changes including stopping open houses, requiring buyers hand washing or hand sanitizing, or asking buyers to remove shoes and wear footies. In California, 34 percent of sellers have adopted these or other changes. In Washington, 44 percent of sellers have adopted these or other changes. (see graph below)
Sample: The survey was delivered to 70,036 residential members including 7,000 members in the states of California and Washington. The survey had 2,518 useable responses, including 313 from California and 308 from Washington.
Dates: The survey was deployed on Monday, March 9th, and was closed on Tuesday March 10th. One reminder email was sent.
The margin of error for overall results is +/-1.95 percent. This response rate is high enough and the margin of error is low enough that the results can be considered quantitative and reflective of all members within this margin of error.
According to the Census Bureau, HUD and Commerce Department This Week in Real Estate the market to start the year for newly built single-family homes experienced significant growth year-over-year. Permits in January reached their highest level since June 2007 and housing starts were 21.4% above January 2019. Below are a few highlights from the third week of February that influence our business:
* Housing Starts Mark a Solid Start in 2020. Relative to January 2019 total housing starts are 21.4 percent above the annual pace of 1.29 million units. The three-month moving average for single-family in January is an annual rate of 1,008,000 units, which is the highest pace since the Great recession. Single-family permits have registered a 20.2 percent gain compared to a year ago. This is in line with the NAHB/Wells Fargo Housing Market Index, which held builder confidence in the market for newly-built single-family homes at a solid level of 74 in February. Regional data show, on a year-over-year basis positive conditions for single-family construction in the West (+24.7 percent) and Midwest (+17.7 percent) while South (-3.7 percent) and Northeast (-15.4 percent) have posted declines.
* Single-Family Building Permits Rise to a 12-Year High. Permits for new houses rose to a more than 12-year high in January as builders began shifting into high gear amid a property shortage. Single-family home
authorizations, as permits are known, jumped to 987,000 at a seasonally adjusted annual pace, the highest since June 2007, the Commerce Department said on Wednesday. The January rate was a gain of 6.4% from December.Overall permits, including multifamily units and single-family homes, jumped 9.2% to an annual pace of 1.551 million, the highest level since March 2007.
* $221M Lost to Wire Transfer Fraud in 2019. Incidents and losses due to real estate wire fraud continue to increase, according to the FBI’s 2019 Internet Crime Report. The report shows there were 11,677 victims in 2019 with $221 million in losses. This compares to 11,300 reported victims and $150 million in losses in 2018. According to the FBI, only 15 percent of all wire fraud incidents are reported. Overall, the FBI reported that IC3 received 467,361 complaints in 2019 – an average of nearly 1,300 every day – and recorded more than $3.5 billion in losses to individual and business victims. The most frequently reported complaints were phishing and similar ploys, non-payment/non-delivery scams and extortion. The most financially costly complaints involved business email compromise, romance or confidence fraud, and spoofing, or mimicking the account of a person or vendor known to the victim to gather personal or financial information. Donna Gregory, the chief of IC3, said that in 2019 the center didn’t see an uptick in new types of fraud but rather saw criminals deploying new tactics and techniques to carry out existing scams. “Criminals are getting so sophisticated,” Gregory said. “It is getting harder and harder for victims to spot the red flags and tell real from fake.” While email is still a common entry point, frauds are also beginning on text messages—a crime called smishing—or even fake websites—a tactic called pharming. Individuals need to be extremely skeptical and double check everything, Gregory emphasized. “In the same way your bank and online accounts have started to require two-factor authentication—apply that to your life,” she said. “Verify requests in person or by phone, double check web and email addresses, and don’t follow the links provided in any messages.”
According to the Federal Reserve’s Flow of Funds report released This Week in Real Estate the value of U.S. owner-occupied homes increased to a record of $29.2 trillion in the third quarter of 2019. Home values rise as mortgage rates remain low. Fannie Mae believes the average fixed rate in 2020 will probably be 3.6% and if so, will be the lowest annual average ever recorded in Freddie Mac records going back to 1973. Below are a few highlights from the first full week of 2020…
* U.S. Home Values Rise to Record $29.2 Trillion, Fed Says. The value of all U.S. owner-occupied homes increased to a record $29.2 trillion in the third quarter, according to a Federal Reserve report known as the Flow of Funds. That was a gain of 4.2% from a year earlier, the slowest annualized increase since 2012. The collective value of U.S. homes is now 21% higher than the bubble peak reached in 2006. The Fed’s tally of home values for all U.S. residential real estate, whether occupied by homeowners or not, was $32.9 trillion, the report said.
* U.S. Mortgage Debt Hits a Record $15.8 Trillion. Outstanding U.S. mortgage debt rose to $15.8 trillion in the third quarter of 2019, according to the Federal Reserve. The biggest chunk of debt was held on homes, at $11.1 trillion, followed by commercial, with $3 trillion of loans, multifamily at $1.6 trillion and farms at $254.1 billion, according to the Fed data. Mortgage debt is rising as U.S. real estate values gain. Low mortgage rates boost real estate prices, and hence the volume of loans, because cheaper financing means buyers qualify for higher-balance mortgages and can bid more for properties they want. The average fixed rate probably will be 3.6% in 2020, which would be the lowest annual average ever recorded in Freddie Mac records going back to 1973.
* Homebuying Sentiment Up Sharply From 2018. Fannie Mae’s Home Purchase Sentiment Index (HPSI) finished out the year with little change from November to December, but with a strong increase over the December 2018 version. “The continued strength in the HPSI attests to the intention among consumers to purchase homes. This is consistent with the Fannie Mae forecast for 2020,” said Doug Duncan, Senior Vice President and Chief Economist. “The HPSI hit and remained near an all-time high in 2019, driven by the 16-percentage point year-over-year increase in the share of consumers believing it is a good time to buy. The HPSI’s strength supports our prediction of a healthy housing market in 2020, as well as consumers’ appetite and ability to absorb the expected increase in entry-level inventory.”
For the first time since at
least World War II, mortgage rates and the unemployment rate are below
4-percent. As a result, some economists are predicting home prices will
increase at a faster pace over the next 12 months than they have in 2019.
Corelogic says home prices
will likely increase by 5.8% through August 2020. That’s a faster pace than the
3.8% seen in August of this year.
First-time homebuyers, Generation
Z homebuyers and single female homebuyers are taking full advantage of this
46-percent of all loans Freddie
Mac has purchased this year came from first-time homebuyers, while there has
been a 200% and 500% increase in Gen Z and single female homebuyers,
* Labor Costs Likely to Push Home Prices Higher. In an article in CoreLogic’s Insights blog, Nothaft quotes National Association of Home Builder (NAHB) figures that say about 60 percent of a new home’s sales price reflects the construction costs of the home. The major components of building costs are those associated with purchasing and preparing a lot, acquiring permits and inspections, hiring labor and buying materials. There was a significant price run-up in the two major components of framing, lumber and steel. Labor costs are another matter. Much has been written about the shortage of construction labor. Many workers left the trades during the Great Recession and the industry has had trouble luring young people and especially young women into the field. Vacancies as a percent of construction job are now at the highest level in 18 years and compensation has risen accordingly. It is up 3 percent this year, about double the rate of inflation. Worker retention is an issue as well. Nothaft says rising land and labor costs will probably offset any savings builders might realize from lower lumber prices and overall costs for a new home will continue to rise.
* Mortgage Rates Drop Again – And First-Time Homebuyers Take Full Advantage. Mortgage rates dropped again, and according to Freddie Mac, the downward spiral has first-time buyers gaining ground. In fact, of all the loans Freddie Mac has purchased in 2019, 46% came from first-time homebuyers – a two-decade high for the company. According to representatives at online mortgage provider Better.com, the lender has seen a “huge uptick” in first-time homebuyers as well. There’s also been a 200% increase in Generation Z homebuyers (born 1997-2012) and a 500% increase in single female homebuyers aged 30-40. As Sam Khater, Freddie Mac’s chief economist, reported yesterday, “The fifty-year low in the unemployment rate, combined with low mortgage rates, has led to increased homebuyer demand this year. Much of this strength is coming from entry-level buyers.”
* Where Have All the Affordable Homes Gone? Housing affordability has been a growing concern in the housing ecosystem, but why is it such a problem? While home prices have been steadily rising for many years, Nothaft observed, “We find that lower-priced homes have appreciated much, much more than higher-priced homes.” Since May 2018, prices of homes more than 25% above the median have risen 3%, while homes in the lowest tier, those more than 25% below the median, have risen almost 5.5%. As demand rises on affordable homes, the supply has become increasingly constrained. Nothaft noted, “New construction, while picking up gradually over the last few years, is still well below what it was prior to the housing boom.” The current inventory for homes is tightest in the lowest price tiers, particularly in those between 50 and 100 percent of the median home price. On the affordable housing shortage, Nothaft concluded, “I don’t see that changing any time soon unless we find ways to reduce the cost of producing or delivering lower-priced homes into the marketplace and reducing some of the regulatory costs.” In the meantime, with demand rising on an increasingly scarce product, we can expect prices to continue rising on affordable homes for the foreseeable future.
Mortgage Rates May Tumble to Record 3.3% by 2019’s End. Fixed mortgage rates could fall to 3.3% by the end of the year as the nation’s economy slows, according to Lawrence Yun, chief economist of the National Association of Realtors. That would put the rate just a smidge below the 3.31% seen in November of 2012 – the lowest average for a 30-year fixed mortgage in Freddie Mac data going back to 1971. “But lower rates may not help with affordability because home prices are re-accelerating higher, easily above the latest wage growth. Housing inventory has recently stopped rising, putting upward pressure on home prices of moderately priced homes,” Yun said. “But there is still a time to get the economy into a higher gear with increased home building of affordable homes and lessening trade tensions.”
* A Smaller Share of Prospective Buyers is Actively Looking For a Home. A national poll in the second quarter of 2019 revealed that 12% of adults are thinking about buying a home in the next 12 months. Of that group, 41% are already actively engaged in the process of finding a home to purchase, which is a smaller share than a year earlier, when 50% of prospective buyers were engaged in the search process. This finding suggests that the lower mortgage rate environment of 2019 has not had the expected effect of nudging more people to start looking for a home to buy. Across generations, about 40% of Millennials, Gen X’ers, and Boomer buyers have moved beyond just planning and begun the home search, compared to only 21% of Senior buyers. Geographically, prospective buyers in the Northeast are the most likely to be actively looking for a home (47%), followed by those in the West (43%), and those in the Midwest and South (both 39%). How long are buyers who are actively engaged in the search process hunting for a home? In the second quarter of 2019, 45% had been at it for less than 3 months while the other 55% had been trying to find the right home for 3 months or longer. Those shares were essentially unchanged from a year earlier, when they stood at 46% and 54%, respectively.
* Residential Construction Spending Drops Further Off 2018 Pace. Construction spending inched up by 0.1 percent in July, to a seasonally adjusted annual rate of $1.289 trillion compared to $1.288 trillion in June. The July figure is 2.7 percent lower than the rate of spending in July 2018. On an unadjusted basis, spending for the month was $119.214 billion and for the year-to-date (YTD) stands at $733.782 billion, down 2.1 percent from the $749.888 billion spent during the first seven months of 2018. Private sector spending on residential spending was at an annual rate of $506.743 billion compared to $503.515 billion in June, an increase of 0.6 percent but down 6.6 percent from the prior July. Single family construction was at a rate of $268.138 billion a 1.4 percent month-over-month gain but a decrease of 8.5 percent on an annual basis. For the YTD, total residential spending has totaled $289.891 billion, $150.219 billion of it on single-family houses. During the same period in 2018 the respective totals were $316.929 billion and $164.529 billion. These represent declines of 8.5 and 8.7 percent.